Certain aspects of international trade have characteristics that put them into special categories of compliance. The following sections examine some of the most important issues in this area.
Agri-food Exports and Imports
Food and agricultural products constitute an especially sensitive area of compliance. The basic international standards are defined by the WTO Agreement on Sanitary and Phytosanitary Measures, but each country also applies its own processing, labelling, testing and certification regulations.
Canadian agri-food regulations
Canada applies a broad variety of health and safety regulations to food, animal feeds, plants, animals and all other agricultural products imported to, or exported from, Canada. These regulations establish agri-food requirements in areas such as supplier registration, import/export documentation, processing, shipping, storage, inspection and traceability.
Combinations of these requirements are often used to regulate the import and export of agri-food products. If you intend to become an agri-food importer or exporter, you should be fully aware of the rules that apply to your products and what you must do to comply with them. A good place to begin your research is the Canadian Food Inspection Agency (CFIA), which maintains local offices across the country.
The major Canadian legislation pertaining to agri-food is the Food and Drugs Act and Regulations, but many imported agricultural, meat and fish products are subject to other legislation as well. Consequently, the need for licensing, permits and certificates varies according to the type of food you import and, in some cases, on the country where your supplier is located.
You can find further information about import/export regulations and other agri-food matters, including U.S. requirements, on these web sites:
Registrations, certifications and declarations
When you’re importing or exporting agricultural products, you may have to register with the appropriate Canadian regulating agency, or its counterpart agency in your destination market, or both.
If you’re an importer, each shipment of an agri-food product must be accompanied by an official certificate from the authorities of the exporting country and/or an approval or permit from the appropriate Canadian federal department. For some products, you must also provide an import declaration form stating that the product is fit for human consumption. The Automated Import Reference System, operated by the Canadian Food Inspection Agency (CFIA) contains detailed information on the federal import requirements for foods.
Generally, import declarations are required for processed fruits and vegetables, dairy products, honey, maple syrup, seeds, fertilizers and animal feeds. There are also CFIA export guidelines for prepared foods, meat, fish, fruits and vegetables. In addition, certain agri-food products are on Canada’s agricultural import/export control list.
Note that many agricultural products can enter Canada only if they are produced in a country that poses no animal or health concerns. Foreign agri-food suppliers must also be approved by the CFIA before they can export to Canada. If you’re considering a new foreign supplier, make sure the company is on the CFIA’s approved list.
Processing and grading
All governments regulate the processes and substances used in agri-food production. Canada, for example, sets maximum residue limits for chemicals in animal feeds and in food destined for human consumption. Many agri-food products also have grade requirements, which specify a certain level of quality that must be met before the product can be imported into Canada for human or animal use. If you intend to export agri-food products, be sure they comply with your destination market’s processing regulations and grading standards before you ship them.
Labelling and packaging
Because food products are subject to so many regulations and standards, complying with labelling requirements can be confusing. Generally speaking, however, the basic information on a label must include nutrition data, product quantity and/or volume, ingredients, best-before date and warnings about potential allergens.
If you’re an exporter, labelling requirements can differ significantly depending on the market to which you’re exporting. Your international customer can usually help you determine what is needed, and it is also a good idea to include a buyer-approved sample label in the sales contract.
If you’re an importer, the labelling of the imported product must comply with Canadian regulations. Products from the United States, for example, must be labelled in both French and English before they can enter Canada. The Canadian Food Inspection Agency provides a comprehensive Guide to Food Labelling and Advertising and also provides labelling information services across the country.
In addition to labelling requirements, your products may be subject to packaging regulations. These can take the form of restrictions on size and on the packaging materials themselves. Health Canada provides more information on its Packaging Materials page.
Shipping and storage
Agri-food products must be stored and shipped so that their eventual consumption does not endanger human or animal health. If substandard logistics adversely affect an imported product—inadequate refrigeration, for example, or contamination by hazardous substances in the same shipment—it will very likely be refused entry into Canada. To avoid this, your shipping agreements should specify transport and storage methods that comply with Canadian regulations.
Canadian regulators often inspect agri-food products to ensure that they comply with safety regulations. This is done not only for food consumed domestically but also for food exports, since it is vital to maintain Canada’s international reputation as a safe and reliable food producer.
If you sell food abroad, government inspectors may come to your facility to examine the products you export. Such inspections cover matters such as packaging and labelling, sampling and testing results, and export certificates and documentation. Certain agricultural products, such as dairy products and beef, must be inspected before you can legally export them.
Import inspections are not obligatory, but the Canadian Food Inspection Agency conducts random inspections to ensure compliance with Canadian regulations. Products that don’t comply may be held until the requirements are met, or they may be destroyed or ordered out of the country.
Traceability is the ability to follow an item or a group of items from one point in a supply chain to another, either backward or forward. In the case of Canadian livestock, for example, traceability systems are based on animal identification, premises identification and animal movement. At present, the Canadian Food Inspection Agency has traceability requirements for cattle, bison and sheep, and further requirements are being considered for swine and poultry. For more information, refer to the Livestock Traceability page.
Service exporters often have to deal with unfamiliar regulatory requirements when doing business abroad. Understanding and complying with such regulations is vital for reducing compliance risk, since failing to do so can lead to trouble with the local authorities and prevent you from satisfying your local customers. Non-compliance can also result in penalties and may cause your company to be shut out of the market altogether.
This section examines some of the major compliance issues that are particularly important for services exporters.
Many countries do not recognize Canadian professional credentials, so your company’s personnel may have to obtain local certifications before you can begin providing services in your new market. Your service sector association may have information that will help you here, but you should also consult the Trade Commissioner Service office in the target market before you seek service contracts with potential buyers.
Sending employees abroad
Almost all countries have immigration laws that restrict the freedom of non-resident foreigners to work locally. Consequently, if you intend to have your Canadian staff deliver your service in a foreign market, you’ll need to make sure beforehand that they’ll be allowed to do this. If they’re going to work in the United States, for example, they’ll need a visa before they can even cross the border. Requirements of this nature are common around the world.
You should also be aware that immigration authorities take a very dim view of foreigners who work locally without permission. The penalties for doing so can be severe, so it’s wise to consult local immigration lawyers before you commit to sending your staff abroad. These legal professionals can help with the paperwork, speed up the visa process and ensure that you don’t inadvertently break the law.
For detailed information related to sending service personnel to the United States or Mexico under NAFTA, refer to Foreign Affairs, Trade and Development Canada’s guide to Cross Border Movement of Business Persons. The web site of the U.S. Embassy in Canada also provides information on U.S. visa categories and their requirements.
Registration and licensing
Most jurisdictions will require you to register your service business with the local revenue or tax agency, even if you are providing the service from Canada. Many countries will also require you to obtain permits or licences before you can market or supply your services locally, and you may have to retain a local agent as your representative before you can do any business in the market at all.
The Trade Commissioner Service office in your target market can be a good source of information on what types of licences, authorizations and permits you might require. If you’re exporting services to the United States, local U.S. economic development organizations and regional chambers of commerce may also be helpful.
Many countries restrict the participation of international service providers in key sectors such as transportation and telecommunications, and in legal, insurance, education and health services. In highly sensitive industries, international companies may be banned from any participation whatsoever. In less tightly restricted industries, you may be able to establish a commercial presence in the market by partnering with a local firm. Before you decide to enter a new market, make sure that local regulations allow international companies to provide services in the sector that interests you.
Intellectual property protection
The intellectual property (IP) and proprietary technology of a services company can be its most valuable assets. Because these assets are so often intangible, they are difficult to protect and can be highly vulnerable to misappropriation. Industrial espionage, for example, can be a real threat, since the theft of a service company’s IP can cost vast amounts in lost sales and business opportunities.
If your company is exposed to high IP risks, you should register your copyrights, patents, trademarks and industrial designs in all the foreign markets where you operate or are planning to operate (see the section "Intellectual property agreements” for more information. Stringent licensing conditions, non-disclosure agreements, tight IT security and strict control of physical IP assets will also help by reducing your IP’s vulnerability to theft.
It’s vital for exporters to understand the competitive environments of the markets—both export and domestic—where they do business. Government policies and regulations can have a considerable effect on these environments, and local companies sometimes take advantage of them to get an edge over their foreign competitors. Governments themselves sometimes adopt policies that give their domestic industries an advantage over similar industries in other countries.
The legal remedies for such market distortions vary depending on what trade agreements, if any, Canada has with the offender’s country. For information on NAFTA-related remedies, you can refer to the NAFTA Dispute Settlement Options on the NAFTANow web site.
The most common manifestations of protectionism are dumping, subsidies, anti-competitive behaviour and local content rules.
Dumping occurs when a company sells its product abroad but charges a lower price for the exported product than it does at home. It usually does this to obtain a competitive advantage in the target market. If the target market is Canada, for example, the international company might undercut the price that Canadian companies charge for the same product within Canada. Alternatively, the international company might dump its products into an overseas market where Canadian exporters already sell similar products, in order to beat the Canadian price in that market and thus gain an advantage there.
If a product is dumped into a country, the local government may defend its domestic industries by levying an anti-dumping tariff to raise the price of the foreign product. In Canada these actions are governed by the Special Import Measures Act, which is administered by the Canadian International Trade Tribunal and the Canadian Border Services Agency (CBSA).
If you believe your company’s Canadian sales are threatened by dumping on the part of an international competitor, you can file a complaint through the CBSA. This is a lengthy process, however, and you’ll need legal help to do so. For more information, refer to the CBSA’s Anti-dumping and Countervailing Directorate.
If the dumping is happening in one of your export markets, unfortunately, you have very little recourse except to out-compete the dumper.
If a government subsidizes an exporting company, the company can then charge its customers less for a product than it would if there were no subsidy. This reduction distorts the price of the goods.
Many trade agreements—NAFTA, for example—permit manufacturers to benefit from certain types of subsidies; an example would be upgrades to railroads and ports that reduce shipping costs. Subsidies that are linked to exports, however, such as grants or tax breaks related to production, are considered to be trade-distorting measures and can trigger what is called a countervailing duty. Countervailing duties are imposed by governments on subsidized imports entering a country’s domestic market in the same way that anti-dumping duties are levied on dumped products.
If you believe your domestic sales are being harmed by subsidies, refer to the Anti-dumping and Countervailing Directorate. As with dumping, filing a complaint is a lengthy process that requires legal help.
This includes price fixing, deceptive marketing, collusion and monopolistic behaviour. This is most commonly done by companies or groups of companies working together, although governments sometimes engage in these practices as well; an example would be passing legislation to limit the foreign ownership of local companies.
If Canada has an agreement about anti-competitive behaviour with the country in question, exporters may be able to file complaints if they believe the agreement has been violated. The Competition Bureau of Canada has detailed information about the agreements to which Canada is a party.
If you believe your exports are being harmed by anti-competitive behaviour in a foreign market, you should contact the Legislative and International Affairs Branch of the Competition Bureau.
Local content requirements
Many governments use local content requirements to encourage domestic production. These requirements can also serve as trade barriers by specifying that some fraction of a local product’s inputs must be acquired in the domestic market. As a result, imports of that product may be suppressed in favour of the locally manufactured version.
These requirements are often more difficult to detect than trade barriers such as import quotas. However, if you’re an exporter with a product affected by local content restrictions, you may be able to apply for a waiver of the requirement if your product is scarce or unavailable in the export market.
Your overseas customers, of course, have to comply with their countries’ local content requirements when they purchase inputs or finished products from you. If they don’t, they can be subject to penalties of varying kinds and severity. If your foreign buyer may be subject to such requirements, you should clarify this before finalizing a sale. If you don’t, and your buyer purchases your goods in violation of local-content requirements, the goods may be returned to you without payment.
Case study: U.S. local content rules
In 2009, the United States attached “Buy American” conditions to billions of dollars of federal stimulus money. This meant that any U.S. government entity receiving stimulus funds had to cancel its orders for Canadian goods, and many Canadian companies were affected.
Among them was Ipex Inc., a Mississauga pipe manufacturer that had a contract to supply plastic piping for a new health care centre at the Camp Pendleton Marine Base in California. As a result of the “Buy American” legislation, the pipes had to be ripped out and replaced with a U.S.-made product. Ipex has now established manufacturing facilities in the United States to avoid future disruptions.
Integrity risks are those risks that may undermine or destroy the reputation of your company and its employees, and may (in extreme cases) lead to criminal prosecution, stringent penalties and even the collapse of the business itself. Many of these risks are related to various forms of international financial crime, which include corruption, money laundering and terrorist financing. More information is available in our guide to Financial Crime in International Trade and on our Business Ethics page.
A Canadian company that makes payments to foreign public officials to gain a market advantage is participating in bribery under the Corruption of Foreign Public Officials Act (CFPOA). This is considered a serious offense both here and in most other countries, because it propagates corruption in national economies and rots them from within. The bribing company can be prosecuted in Canadian courts under the CFPOA and the financial penalties, if it is convicted, can far outweigh any gains from the bribe.
You can minimize your risk of becoming involved in corruption by taking these steps:
- Determine whether your market presents a high risk of corruption.
- Establish a corporate anti-corruption policy that documents and applies suitable management systems for combatting bribery.
- Educate and train your employees and agents on their anti-corruption responsibilities and the actions they should take if they encounter corruption.
- Verify the credentials of agents and partners representing your company and monitor their efforts on your behalf.
- Establish a reporting system for suspicious behaviour.
We also have numerous resources that can help you avoid involvement in corruption.
If you suspect bribery and/or corruption in your dealings with a foreign counterparty, you should contact the RCMP’s International Anti-Corruption Unit in either Calgary (403-699-2550) or Ottawa (613-993-6884).
As described on our Financial Crime in International Trade page, money laundering is used to disguise the source of money or assets derived from criminal activity. It is a serious global problem because it encourages corruption and can even destabilize the economies of susceptible countries. It also compromises the integrity of legitimate financial systems and institutions and gives organized crime the funds it needs to conduct further criminal activities.
Criminals use several different techniques to manipulate unsuspecting Canadian exporters and importers into helping them launder money. You may be at risk if:
- An international customer tries to pay you through one or more apparently unrelated businesses in a third country.
- An international customer overpays you for a shipment of goods, and then asks you to send the refund to an apparently unrelated business in a third country.
- An international customer wants to pay you cash for a shipment of goods.
- An international supplier asks you to pay for a shipment of goods by sending the payment to an apparently unrelated business in a third country.
- An international supplier offers you an exceptionally good deal that involves sending the payment to an apparently unrelated business in a third country.
If you suspect that a transaction with a foreign counterparty may involve money laundering, you should immediately:
- Retain legal counsel to advise you how to proceed.
- Gather all supporting documentation and place it in a secure location.
- Notify both your financial institution and the federal government’s Financial Transactions Reports and Analysis Centre that the transaction may be related to money laundering.
Do not tell the buyer or seller that you have reported the transaction.
Terrorist financing provides funds for terrorist activity and may involve money raised from both legitimate sources and from criminal sources such as the drug trade, weapons smuggling, fraud, kidnapping and extortion. As with criminals, terrorists use various money-laundering techniques to evade authorities’ attention and to protect their identities and those of their sponsors.
Your most effective defence against becoming embroiled in terrorist financing is to carry out rigorous due diligence. If you discover that your potential buyer or supplier—whether an individual or a company—has been sanctioned by the Canadian government as a terrorist or a terrorist organization, you must immediately halt the transaction. You must also report the transaction and the business relationship to Canadian government authorities.
Canada’s banking regulator, the Office of the Superintendent of Financial Institutions, provides a list of sanctioned individuals and organizations. Public Safety Canada has a list of entities sanctioned by Canada’s Anti-Terrorism Act. Canada’s Department of Foreign Affairs, Trade and Development publishes Canadian Economic Sanctions on its web site.
If you suspect that an individual or organization may be linked to terrorist financing, you should immediately contact the RCMP’s National Security Information Network by email or by telephone at 1-800-420-5805.
Resolving Business Disputes
For both exporters and importers, most international trade disputes arise from alleged non-compliance with the terms of a sales agreement. It is almost always preferable to avoid litigation to resolve such conflicts, especially if it will take place in your adversary’s country. A much better option is to seek resolution through international commercial arbitration, which is also known as alternative dispute resolution.
Advantages of arbitration
Arbitration is intended to deal with business disputes by using independent arbiters to find a solution. Arbitration requires that both parties agree to it, and this agreement is usually established by an arbitration clause in the contract. The NAFTA Secretariat provides a guide to Alternative Dispute Resolution that includes model clauses that companies can modify for their own international contracts.
International commercial arbitration has several advantages over litigation:
- The arbiter’s decision is normally binding, which prevents both parties from appealing it.
- The decision is usually recognized under international law, so it can be enforced if necessary.
- Because arbitration operates outside the local legal system and uses independent, neutral rules, there is less chance of bias in favour of either the plaintiff or the defendant.
- It is much faster and much less expensive than litigation.
Several organizations specialize in international commercial arbitration. The following bodies are among the most prominent.